Norfolk Southern reports third-quarter 2014 results

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Oct 22, 2014, 08:00 ET

NORFOLK, Va., Oct. 22, 2014 /PRNewswire/ -- Norfolk Southern (NYSE: NSC) reported third-quarter net income of $559 million, 16 percent higher than $482 million for the same period of 2013. Diluted earnings per share were $1.79, up 17 percent compared with $1.53 per diluted share in the same period last year.

"Norfolk Southern reported another record-setting quarter during which we achieved our best third-quarter results in revenues, operating income, net income, earnings per share, and operating ratio," said CEO Wick Moorman. "Higher traffic volumes along with continued gains in productivity drove these excellent results. We remain focused on ensuring we can support continued demand for freight rail transportation by hiring additional employees, investing in new equipment, and completing capacity projects in order to provide our customers with the freight rail service they expect today and in the future."

Third-Quarter Results Set Quarterly Records

Railway operating revenues increased 7 percent to $3.0 billion.
Income from railway operations improved 18 percent to $998 million.
Net income increased 16 percent to $559 million.
Diluted earnings per share rose 17 percent to $1.79.
The railway operating ratio improved 4 percent to 67.0 percent.

Third-quarter railway operating revenues climbed 7 percent compared with the same period of 2013 to top $3.0 billion for a second consecutive quarter as growth in the merchandise and intermodal markets offset a weaker coal market.

Third-Quarter Revenue by Commodity Group

Intermodal: $667 million, up 10 percent
Coal: $626 million, down 2 percent
Chemicals: $488 million, up 14 percent
Metals/Construction: $414 million, up 11 percent
Agriculture: $364 million, up 5 percent
Automotive: $254 million, up 12 percent
Paper/Forest: $210 million, up 3 percent

General merchandise revenues reached $1.7 billion, a 10 percent increase compared with the third quarter of 2013, driven by volume gains in all markets, with particular strength in chemicals, automotive, metals and construction, and agriculture.

Intermodal revenues increased to $667 million, 10 percent higher compared with third-quarter 2013. Volume rose 10 percent, fueled by robust growth in both international and domestic markets.

Coal revenues declined 2 percent to $626 million in the third quarter compared with the same period of 2013. A weak global export market and mild weather and lower natural gas prices in the utility market combined to decrease volume by 2 percent.

Railway operating expenses were $2.0 billion, 3 percent higher compared with third-quarter 2013, largely due to costs associated with higher business volumes.

Income from railway operations was $998 million, 18 percent higher compared with third-quarter 2013.

The railway operating ratio, or operating expenses as a percentage of revenue, was 67.0 percent, a 4 percent improvement compared with 69.9 percent during the same period of 2013.

Norfolk Southern Corporation is one of the nation's premier transportation companies. Its Norfolk Southern Railway Company subsidiary operates approximately 20,000 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is a major transporter of coal, automotive, and industrial products.

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)

	Third Quarter				First Nine Months
	2014		2013		2014		2013
	($ in millions, except per share amounts)

Railway operating revenues
Coal	$	626	$	641	$	1,839	$	1,902
General merchandise		1,730		1,578		5,002		4,696
Intermodal		667		605		1,913		1,766
Total railway operating revenues		3,023		2,824		8,754		8,364

Railway operating expenses
Compensation and benefits		728		735		2,183		2,241
Purchased services and rents		429		420		1,235		1,223
Fuel		387		390		1,227		1,210
Depreciation		236		230		711		683
Materials and other		245		200		714		631
Total railway operating expenses		2,025		1,975		6,070		5,988

Income from railway operations		998		849		2,684		2,376

Other income – net (note 1)		32		30		76		194
Interest expense on debt		138		131		416		388

Income before income taxes		892		748		2,344		2,182

Provision for income taxes
Current		329		194		834		570
Deferred		4		72		21		215
Total income taxes		333		266		855		785

Net income	$	559		482		1,489		1,397

Earnings per share (note 1)
Basic	$	1.80	$	1.55	$	4.80	$	4.45
Diluted		1.79		1.53		4.75		4.40

Weighted average shares outstanding (note 2)
Basic		309.4		310.4		309.5		313.0
Diluted		312.6		313.9		312.7		316.6

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)


	Third Quarter				First Nine Months
	2014		2013		2014		2013
	($ in millions)

Net income	$	559	$	482	$	1,489	$	1,397
Other comprehensive income, before tax:
Pension and other postretirement benefits		8		38		314		110
Other comprehensive income of equity investees		-		-		10		2
Other comprehensive income, before tax		8		38		324		112
Income tax expense related to items of other
comprehensive income		(3)		(15)		(121)		(43)
Other comprehensive income, net of tax		5		23		203		69

Total comprehensive income	$	564	$	505	$	1,692	$	1,466

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

	September 30,			December 31,
	2014			2013
	($ in millions)
Assets
Current assets:
Cash and cash equivalents		$	1,432		$	1,443
Short-term investments			-			118
Accounts receivable – net			1,103			1,024
Materials and supplies			249			223
Deferred income taxes			178			180
Other current assets			50			87
Total current assets			3,012			3,075

Investments			2,610			2,439
Properties less accumulated depreciation of $10,740 and
$10,387, respectively			27,230			26,645
Other assets			354			324

Total assets		$	33,206		$	32,483

Liabilities and stockholders' equity
Current liabilities:
Accounts payable		$	1,387		$	1,265
Short-term debt			-			100
Income and other taxes			301			225
Other current liabilities			392			270
Current maturities of long-term debt			2			445
Total current liabilities			2,082			2,305

Long-term debt			8,919			8,903
Other liabilities			1,084			1,444
Deferred income taxes			8,682			8,542
Total liabilities			20,767			21,194

Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 309,441,867 and 308,878,402 shares,
respectively, net of treasury shares			311			310
Additional paid-in capital			2,150			2,021
Accumulated other comprehensive loss			(178)			(381)
Retained income			10,156			9,339

Total stockholders' equity			12,439			11,289

Total liabilities and stockholders' equity		$	33,206		$	32,483

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)


	First Nine Months
	2014		2013
	($ in millions)
Cash flows from operating activities
Net income	$	1,489	$	1,397
Reconciliation of net income to net cash provided by operating activities:
Depreciation		715		687
Deferred income taxes		21		215
Gains and losses on properties and investments (note 1)		(13)		(100)
Changes in assets and liabilities affecting operations:
Accounts receivable		(79)		26
Materials and supplies		(26)		(8)
Other current assets		47		48
Current liabilities other than debt		258		121
Other – net		(66)		18
Net cash provided by operating activities		2,346		2,404

Cash flows from investing activities
Property additions		(1,379)		(1,470)
Property sales and other transactions		69		109
Investments, including short-term		(4)		(29)
Investment sales and other transactions		60		21
Net cash used in investing activities		(1,254)		(1,369)

Cash flows from financing activities
Dividends		(511)		(476)
Common stock issued – net		119		92
Purchase and retirement of common stock (note 2)		(166)		(564)
Proceeds from borrowings – net		100		492
Debt repayments		(645)		(248)
Net cash used in financing activities		(1,103)		(704)

Net increase (decrease) in cash and cash equivalents		(11)		331

Cash and cash equivalents
At beginning of period		1,443		653

At end of period	$	1,432	$	984

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	340	$	305
Income taxes (net of refunds)		733		485

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

Other Income – Net
In first quarter 2013, we recognized a $97 million gain on a land sale, which increased net income by $60 million or $0.19 per share.
Stock Repurchase Program
We repurchased 1.7 million shares of common stock in the first nine months of 2014, totaling $166 million, and 7.5 million shares at a cost of $564 million for the same period of 2013. We have remaining authorization from our Board of Directors to repurchase up to 36.6 million shares through December 31, 2017. The timing and volume of purchases is guided by our assessment of market conditions and other pertinent factors. Any near-term share repurchases are expected to be made with internally generated cash, cash on hand, or proceeds from borrowings. Since the beginning of 2006, we have repurchased and retired 138.4 million shares at a total cost of $8.3 billion.

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SOURCE Norfolk Southern Corporation